China GDP growth falls by an alarming margin; lowest in 25 years

While the new economic normal for China is still enviable at 7 percent, there are some concerns about how big the slowdown actually is and how the country’s government will handle a slowing economy.

European and Asian stocks rallied Tuesday after China’s quarterly economic growth met expectations, calming intense jitters about the global outlook that have battered markets since the beginning of the year. It was down from 6.9 percent in the previous quarter. According to HSBC’s research, industrial capacity utilization rates have fallen to a six-year low in not only conventional “over-capacity” sectors (steel and autos) but an increasing number of manufacturing sectors, underscoring the impact of continued demand slowdown on the economy. The country was expecting GDP growth of almost 7% for the full year, down from 2014’s fiscal year growth of 7.3%.

Despite the respectable headline growth figure, pain is deepening in the sectors that have traditionally driven Chinese growth and global commodity demand.

Instead, China let the markets take the lead.

“Official data do not point to a hard landing in the fourth quarter of 2015, but they provide little reason to stop worrying about China’s drag on the global economy, either”, said economist Bill Afdams of PNC Financial Services Group in a report. Retail sales grew 10.7 per cent, significantly below the 12 per cent recorded in 2014. Instead it created sentiments that China will continue to offer more stimulus measures among investors, soaring index to the north on Tuesday.

December exports shrank 1.4 per cent from a year earlier, well below the ruling party’s target of 6 per cent trade growth.

Industrial production – or factory output – expanded 5.9% in December, down from 6% in November.

Forecasters see indications retail sales and other activity accelerated toward the end of 2015, suggesting Beijing’s efforts to put a floor under the downturn are gaining traction.

“Turbulence in Chinese financial markets this past year amid policy missteps has raised questions for the ability of Chinese authorities to manage the rebalancing of the economy”.

The country’s fixed-assets investment, covering investment in infrastructure and the manufacturing sector, totaled 55.16 trillion yuan ($8.38 trillion) in 2015, the data showed.

Global sharemarket jitters so far this year have been hanging on the GDP delivery, with China’s markets entering a sell-off bear market with around 20% losses, while others are down 5%-10%, since New Year. “Only they have the resources to lift the market this fast”. Chinese government enhanced investments in infrastructure to avoid stimulus package. Day holiday. Stocks fell sharply on Friday, and the first two weeks of this year were the worst start to a year in the history of the Dow and the S&P 500 index. The accuracy of official economic data from China has always been the subject of suspicion, particularly because GDP growth numbers tend to have an uncanny habit of hitting government targets.

The Chinese economy is still facing substantial downward pressure in 2016, with analysts predicting that GDP growth may dip further to around 6.5 percent this year, as two of the three main growth engines, investment and exports, have lost steam.